Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following is management’s discussion and analysis of the major factors that influenced our results of operations and financial condition as of and for the
three
months ended
March 31, 2017
. This analysis should be read in conjunction with our Annual Report on Form 10-K for the year ended
December 31, 2016
(the “2016 Annual Report on Form 10-K”) and with the unaudited consolidated financial statements and notes thereto set forth in this Quarterly Report on Form 10-Q for the period ended
March 31, 2017
(this “Report”).
Forward-Looking Statements
Some of the statements under this item and elsewhere in this Report constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements in this Report other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, statements about anticipated future operating and financial performance, financial position and liquidity, business strategies, regulatory and competitive outlook, investment and expenditure plans, capital and financing needs and availability, developments regarding our capital plans, plans and objectives of management for future operations, strategic alternatives for a possible business combination, merger or sale transactions, and other similar forecasts and statements of expectation and statements of assumption underlying any of the foregoing. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” or “continue,” or the negative of such terms and other comparable terminology. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ from those expressed or implied by the forward-looking statement. These factors include the following: failure to maintain adequate levels of capital and liquidity to support our operations; the effect of potential future supervisory action against us or Hanmi Bank; general economic and business conditions internationally, nationally and in those areas in which we operate, including, but not limited to, California, Illinois and Texas; volatility and deterioration in the credit and equity markets; changes in consumer spending, borrowing and savings habits; availability of capital from private and government sources; demographic changes; competition for loans and deposits and failure to attract or retain loans and deposits; fluctuations in interest rates and a decline in the level of our interest rate spread; risks of natural disasters related to our real estate portfolio; risks associated with Small Business Administration ("SBA") loans; failure to attract or retain key employees; changes in governmental regulation; enforcement actions against us and litigation we may become a party to; ability of Hanmi Bank to make distributions to Hanmi Financial, which is restricted by certain factors, including Hanmi Bank's retained earnings, net income, prior distributions made, and certain other financial tests; ability to successfully and efficiently integrate the operations of banks and other institutions we acquire; adequacy of our allowance for loan and lease losses; credit quality and the effect of credit quality on our provision for loan and lease losses and allowance for loan and lease losses; changes in the financial performance and/or condition of our borrowers and the ability of our borrowers to perform under the terms of their loans and leases and other terms of credit agreements; our ability to control expenses; and changes in securities markets. In addition, for a discussion of some of the other factors that might cause such a difference, see the discussion contained in our 2016 Annual Report on Form 10-K, as well as other factors we identify from time to time in our filings with the SEC. We undertake no obligation to update these forward-looking statements to reflect events or circumstances that occur after the date, on which such statements were made, except as required by law.
Critical Accounting Policies
We have established various accounting policies that govern the application of GAAP in the preparation of our financial statements. Our significant accounting policies are described in the Notes to Consolidated Financial Statements in our
2016
Annual Report on Form 10-K. We had no significant changes in our accounting policies since the filing of our
2016
Annual Report on Form 10-K.
Certain accounting policies require us to make significant estimates and assumptions that have a material impact on the carrying value of certain assets and liabilities, and we consider these critical accounting policies. For a description of these critical accounting policies, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies” in our
2016
Annual Report on Form 10-K. We use estimates and assumptions based on historical experience and other factors that we believe to be reasonable under the circumstances. Actual results could differ significantly from these estimates and assumptions, which could have a material impact on the carrying value of assets and liabilities at the balance sheet dates and our results of operations for the reporting periods. Management has discussed the development and selection of these critical accounting policies with the Audit Committee of Hanmi Financial’s Board of Directors.
Selected Financial Data
The following table sets forth certain selected financial data for the periods indicated:
|
|
|
|
|
|
|
|
|
|
As of or for the
|
|
Three Months Ended March 31,
|
|
2017
|
|
2016
|
|
(dollars in thousands, except per share data)
|
Summary balance sheets:
|
|
|
|
Cash and due from banks
|
$
|
138,592
|
|
|
$
|
137,464
|
|
Securities
|
548,010
|
|
|
675,032
|
|
Loans and leases receivable
(1)
|
3,910,799
|
|
|
3,265,453
|
|
Assets
|
4,811,821
|
|
|
4,310,748
|
|
Deposits
|
4,083,165
|
|
|
3,499,992
|
|
Liabilities
|
4,272,279
|
|
|
3,799,888
|
|
Stockholders’ equity
|
539,542
|
|
|
510,860
|
|
Tangible equity
|
526,745
|
|
|
509,241
|
|
Average loans and leases receivable
|
3,881,686
|
|
|
3,192,832
|
|
Average securities
|
526,549
|
|
|
682,370
|
|
Average interest-earning assets
|
4,463,220
|
|
|
3,949,788
|
|
Average assets
|
4,738,221
|
|
|
4,221,076
|
|
Average deposits
|
3,873,840
|
|
|
3,482,986
|
|
Average FHLB advances
|
270,500
|
|
|
181,868
|
|
Average subordinated debentures
|
30,950
|
|
|
18,722
|
|
Average interest-bearing liabilities
|
2,979,139
|
|
|
2,544,754
|
|
Average stockholders’ equity
|
534,273
|
|
|
499,469
|
|
Average tangible equity
|
521,420
|
|
|
497,797
|
|
Per share data:
|
|
|
|
Earnings per share – basic
(2)
|
$
|
0.43
|
|
|
$
|
0.46
|
|
Earnings per share – diluted
(2)
|
$
|
0.43
|
|
|
$
|
0.46
|
|
Book value per share
(3)
|
$
|
16.66
|
|
|
$
|
15.84
|
|
Tangible book value per share
(4)
|
$
|
16.26
|
|
|
$
|
15.79
|
|
Cash dividends per share
|
$
|
0.19
|
|
|
$
|
0.14
|
|
Common shares outstanding
|
32,392,580
|
|
|
32,249,512
|
|
Performance ratios:
|
|
|
|
Return on average assets
(5) (6)
|
1.18
|
%
|
|
1.41
|
%
|
Return on average stockholders’ equity
(5) (7)
|
10.46
|
%
|
|
11.92
|
%
|
Return on average tangible equity
(5) (8)
|
10.72
|
%
|
|
11.96
|
%
|
Net interest margin
(9)
|
3.89
|
%
|
|
3.98
|
%
|
Net interest margin excluding acquisition accounting
(9)
|
3.85
|
%
|
|
3.68
|
%
|
Efficiency ratio
(10)
|
54.95
|
%
|
|
57.25
|
%
|
Efficiency ratio excluding merger and integration costs
(10)
|
55.01
|
%
|
|
57.25
|
%
|
Dividend payout ratio
(11)
|
44.39
|
%
|
|
30.28
|
%
|
Average stockholders’ equity to average assets
|
11.28
|
%
|
|
11.83
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios
(15)
:
|
|
|
|
Total risk-based capital:
|
|
|
|
Hanmi Financial
|
16.16
|
%
|
|
14.87
|
%
|
Hanmi Bank
|
15.91
|
%
|
|
14.66
|
%
|
Tier 1 risk-based capital:
|
|
|
|
Hanmi Financial
|
12.93
|
%
|
|
13.61
|
%
|
Hanmi Bank
|
15.07
|
%
|
|
13.40
|
%
|
Common equity Tier 1 capital:
|
|
|
|
Hanmi Financial
|
12.56
|
%
|
|
13.61
|
%
|
Hanmi Bank
|
15.07
|
%
|
|
13.40
|
%
|
Tier 1 leverage:
|
|
|
|
Hanmi Financial
|
11.21
|
%
|
|
11.26
|
%
|
Hanmi Bank
|
13.08
|
%
|
|
11.25
|
%
|
Asset quality ratios:
|
|
|
|
Nonperforming Non-PCI loans and leases to loans and leases
(12)
|
0.32
|
%
|
|
0.50
|
%
|
Nonperforming assets to assets
(13)
|
0.36
|
%
|
|
0.60
|
%
|
Net loan and lease charge-offs (recoveries) to average loans and leases
|
(0.08
|
)%
|
|
0.05
|
%
|
Allowance for loan lease losses to loans and leases
|
0.84
|
%
|
|
1.24
|
%
|
Allowance for loan and lease losses to non-performing Non-PCI loans and lease
(12)
(14)
|
252.54
|
%
|
|
217.38
|
%
|
Acquired loans:
|
|
|
|
PCI loans, net of discounts
|
$
|
8,960
|
|
|
$
|
19,834
|
|
Allowance for loan losses on PCI loans
|
891
|
|
|
5,645
|
|
Non-PCI loans, net of discounts
|
101,062
|
|
|
139,869
|
|
Unamortized acquisition discounts on Non-PCI loans
|
5,773
|
|
|
9,021
|
|
|
|
(1)
|
Loans and leases receivable, net of allowance for loan and lease losses
|
|
|
(2)
|
Calculation based on net income allocated to common shares
|
|
|
(3)
|
Stockholders’ equity divided by common shares outstanding
|
|
|
(4)
|
Tangible equity divided by common shares outstanding
|
|
|
(5)
|
Calculation based on annualized net income
|
|
|
(6)
|
Net income divided by average assets
|
|
|
(7)
|
Net income divided by average stockholders’ equity
|
|
|
(8)
|
Net income divided by average tangible equity
|
|
|
(9)
|
Net interest income on a taxable equivalent basis before provision for loan and lease losses divided by average interest-earning assets
|
|
|
(10)
|
Noninterest expenses divided by the sum of net interest income before provision for loan and lease losses and noninterest income
|
|
|
(11)
|
Dividend declared per share divided by basic earnings per share
|
|
|
(13)
|
Nonperforming assets consist of nonperforming loans and leases (see footnote (12) above) and OREO
|
|
|
(14)
|
Excludes allowance for loan and lease losses allocated to PCI loans
|
|
|
(15)
|
Basel III rules, including certain transitional provisions, became effective January 1, 2015
|
Non-GAAP Financial Measures
The Company calculates certain supplemental financial information determined by methods other than in accordance with U.S. GAAP, including tangible assets, tangible stockholders' equity, tangible book value per share, core interest income and yield, and net interest income and margin excluding acquisition accounting. These non-GAAP measures are used by management in analyzing Hanmi Financial’s capital strength, core loan and lease interest income and yield, and net interest income and margin without the impact of the CBI acquisition.
Tangible equity is calculated by subtracting goodwill and core deposit intangible from stockholders’ equity. Banking and financial institution regulators also exclude goodwill and core deposit intangible from stockholders’ equity when assessing the capital adequacy of a financial institution. Core loan and lease interest income and yield are calculated by subtracting accretion of discount on purchased loans. Net interest income and net interest margin are calculated by adjusting the reported
amounts and rates for the impact of the CBI acquisition, including accretion of discount on purchased loans, accretion of time deposit premium and amortization of subordinated debentures discount.
Management believes the presentation of these financial measures excluding the impact of items described in the preceding paragraph provide useful supplemental information that are essential to a proper understanding of the capital strength of Hanmi Financial and our core interest income and margin. These disclosures should not be viewed as a substitution for results determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Tangible Assets, Tangible Stockholders’ Equity and Tangible Book Value Per Share
The following table reconciles these non-GAAP performance measures to the most comparable GAAP performance measures as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31,
|
|
2017
|
|
2016
|
|
(in thousands, except per share data)
|
Total assets
|
$
|
4,811,821
|
|
|
$
|
4,310,748
|
|
Less goodwill
|
(11,031
|
)
|
|
—
|
|
Less other intangible assets, net
|
(1,766
|
)
|
|
(1,619
|
)
|
Tangible assets
|
$
|
4,799,024
|
|
|
$
|
4,309,129
|
|
|
|
|
|
Total stockholders’ equity
|
$
|
539,542
|
|
|
$
|
510,860
|
|
Less goodwill
|
(11,031
|
)
|
|
—
|
|
Less other intangible assets, net
|
(1,766
|
)
|
|
(1,619
|
)
|
Tangible stockholders' equity
|
$
|
526,745
|
|
|
$
|
509,241
|
|
|
|
|
|
Book value per share
|
$
|
16.66
|
|
|
$
|
15.84
|
|
Effect of goodwill
|
(0.35
|
)
|
|
—
|
|
Effect of other intangible assets
|
(0.05
|
)
|
|
(0.05
|
)
|
Tangible book value per share
|
$
|
16.26
|
|
|
$
|
15.79
|
|
Core Loan and Lease Yield and Net Interest Margin
The impact of acquisition accounting adjustments on core loan and lease interest income and yield and net interest margin are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
|
March 31, 2016
|
|
Amount
|
|
Rate
|
|
Amount
|
|
Rate
|
|
(dollars in thousands)
|
Core loan and lease interest income and yield
|
$
|
44,797
|
|
|
4.68
|
%
|
|
$
|
37,036
|
|
|
4.67
|
%
|
Accretion of discount on purchased loans
|
581
|
|
|
0.06
|
%
|
|
2,031
|
|
|
0.25
|
%
|
As reported
|
$
|
45,378
|
|
|
4.74
|
%
|
|
$
|
39,067
|
|
|
4.92
|
%
|
|
|
|
|
|
|
|
|
Net interest income and net interest margin excluding acquisition accounting
(1)
|
$
|
42,230
|
|
|
3.85
|
%
|
|
$
|
36,164
|
|
|
3.68
|
%
|
Accretion of discount on Non-PCI loans and leases
|
527
|
|
|
0.04
|
%
|
|
1,754
|
|
|
0.18
|
%
|
Accretion of discount on PCI loans and leases
|
54
|
|
|
—
|
%
|
|
277
|
|
|
0.03
|
%
|
Accretion of time deposits premium
|
126
|
|
|
0.01
|
%
|
|
942
|
|
|
0.10
|
%
|
Amortization of subordinated debentures discount
|
(77
|
)
|
|
(0.01
|
)%
|
|
(56
|
)
|
|
(0.01
|
)%
|
Net impact
|
630
|
|
|
0.04
|
%
|
|
2,917
|
|
|
0.30
|
%
|
As reported on a fully taxable equivalent basis
|
$
|
42,860
|
|
|
3.89
|
%
|
|
$
|
39,081
|
|
|
3.98
|
%
|
|
|
(1)
|
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
|
Executive Overview
For the three months ended March 31, 2017, net income was $13.8 million, or $0.43 per diluted share, compared with $14.8 million, or $0.46 per diluted share, for the three months ended March 31, 2016. Net income for the first quarter of 2017 decreased 6.9%, or $1.0 million principally because the first quarter of 2016 included a $1.8 million tax benefit arising from the finalization of the Company’s 2014 amended income tax returns. Income before the provision for income taxes for the first quarter of 2017 increased 6.8%, or $1.4 million principally because of the 9.8%, or $3.8 million, increase in net interest income driven by an increase in loans and leases receivable. The increase in net interest income however was partially offset by a $1.4 million reduction in loan and lease provision income and a $1.2 million increase in non-interest expenses.
Other financial highlights include the following:
|
|
•
|
Loans and leases receivable, before the allowance for loan and lease losses, were $3.94 billion at the end of the first quarter of 2017, up $99.2 million, or 2.6 percent, from $3.84 billion at the end of 2016.
|
|
|
•
|
Deposits at March 31, 2017 were $4.08 billion, an increase of $273.4 million, or 7.2 percent, from $3.81 billion at the end of 2016.
|
|
|
•
|
Asset quality at the end of the first quarter of 2017 improved with non-performing assets of $17.4 million, or 0.36 percent of total assets, compared with $18.9 million, or 0.40 percent of total assets at the end of 2016.
|
Results of Operations
Net Interest Income
Our primary source of revenue is net interest income, which is the difference between interest and fees derived from earning assets, and interest paid on liabilities obtained to fund those assets. Our net interest income is affected by changes in the level and mix of interest-earning assets and interest-bearing liabilities, referred to as volume changes. Net interest income is also affected by changes in the yields earned on assets and rates paid on liabilities, referred to as rate changes. Interest rates charged on loans and leases are affected principally by changes to interest rates, the demand for such loans and leases, the supply of money available for lending purposes, and other competitive factors. Those factors are, in turn, affected by general economic conditions and other factors beyond our control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental budgetary matters, and the actions of the Federal Reserve.
The following tables show the average balances of assets, liabilities and stockholders’ equity; the amount of interest income, on a tax-equivalent basis, and interest expense; the average yield or rate for each category of interest-earning assets and interest-bearing liabilities; and the net interest spread and the net interest margin for the periods indicated. All average balances are daily average balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017
|
|
March 31, 2016
|
|
Average
Balance
|
|
Interest
Income /
Expense
|
|
Average
Yield /
Rate
|
|
Average
Balance
|
|
Interest
Income /
Expense
|
|
Average
Yield /
Rate
|
|
(dollars in thousands)
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases receivable
(1)
|
$
|
3,881,686
|
|
|
$
|
45,378
|
|
|
4.74
|
%
|
|
$
|
3,192,832
|
|
|
$
|
39,067
|
|
|
4.92
|
%
|
Securities
(2)
|
526,549
|
|
|
3,026
|
|
|
2.30
|
%
|
|
682,370
|
|
|
3,529
|
|
|
2.07
|
%
|
FRB and FHLB stock
|
16,385
|
|
|
374
|
|
|
9.26
|
%
|
|
30,497
|
|
|
542
|
|
|
7.11
|
%
|
Interest-bearing deposits in other banks
|
38,600
|
|
|
77
|
|
|
0.81
|
%
|
|
44,089
|
|
|
48
|
|
|
0.44
|
%
|
Total interest-earning assets
|
4,463,220
|
|
|
48,855
|
|
|
4.44
|
%
|
|
3,949,788
|
|
|
43,186
|
|
|
4.40
|
%
|
Noninterest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
117,802
|
|
|
|
|
|
|
114,664
|
|
|
|
|
|
Allowance for loan and lease losses
|
(32,842
|
)
|
|
|
|
|
|
(42,519
|
)
|
|
|
|
|
Other assets
|
190,041
|
|
|
|
|
|
|
199,143
|
|
|
|
|
|
Total assets
|
$
|
4,738,221
|
|
|
|
|
|
|
$
|
4,221,076
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Deposits:
|
|
|
|
|
|
|
|
|
|
|
|
Demand: interest-bearing
|
$
|
97,602
|
|
|
$
|
19
|
|
|
0.08
|
%
|
|
$
|
95,560
|
|
|
$
|
19
|
|
|
0.08
|
%
|
Money market and savings
|
1,406,903
|
|
|
2,666
|
|
|
0.77
|
%
|
|
902,037
|
|
|
1,084
|
|
|
0.48
|
%
|
Time deposits
|
1,173,184
|
|
|
2,469
|
|
|
0.85
|
%
|
|
1,346,567
|
|
|
2,624
|
|
|
0.78
|
%
|
Total interest-bearing deposits
|
2,677,689
|
|
|
5,154
|
|
|
0.78
|
%
|
|
2,344,164
|
|
|
3,727
|
|
|
0.64
|
%
|
FHLB advances
|
270,500
|
|
|
468
|
|
|
0.70
|
%
|
|
181,868
|
|
|
195
|
|
|
0.43
|
%
|
Subordinated debentures
|
30,950
|
|
|
373
|
|
|
4.82
|
%
|
|
18,722
|
|
|
183
|
|
|
3.93
|
%
|
Total interest-bearing liabilities
|
2,979,139
|
|
|
5,995
|
|
|
0.82
|
%
|
|
2,544,754
|
|
|
4,105
|
|
|
0.65
|
%
|
Noninterest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Demand deposits: noninterest-bearing
|
1,196,151
|
|
|
|
|
|
|
1,138,822
|
|
|
|
|
|
Other liabilities
|
28,658
|
|
|
|
|
|
|
38,031
|
|
|
|
|
|
Stockholders’ equity
|
534,273
|
|
|
|
|
|
|
499,469
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
$
|
4,738,221
|
|
|
|
|
|
|
$
|
4,221,076
|
|
|
|
|
|
Net interest income (taxable equivalent)
|
|
|
$
|
42,860
|
|
|
|
|
|
|
$
|
39,081
|
|
|
|
Cost of deposits
(3)
|
|
|
|
|
0.54
|
%
|
|
|
|
|
|
0.43
|
%
|
Net interest spread
(4)
|
|
|
|
|
3.62
|
%
|
|
|
|
|
|
3.75
|
%
|
Net interest margin
(5)
|
|
|
|
|
3.89
|
%
|
|
|
|
|
|
3.98
|
%
|
|
|
(1)
|
Loans and leases receivable include LHFS and exclude the allowance for loan and lease losses. Nonaccrual loans and leases are included in the average loan and lease balance.
|
|
|
(2)
|
Amounts calculated on a fully taxable equivalent basis using the current statutory federal tax rate.
|
|
|
(3)
|
Represents interest expense on deposits as a percentage of all interest-bearing and noninterest-bearing deposits.
|
|
|
(4)
|
Represents the average yield earned on interest-earning assets less the average rate paid on interest-bearing liabilities.
|
|
|
(5)
|
Represents net interest income as a percentage of average interest-earning assets.
|
The table below shows changes in interest income (on a tax equivalent basis) and interest expense and the amounts attributable to variations in interest rates and volumes for the periods indicated. The variances attributable to simultaneous volume and rate changes have been allocated to the change due to volume and the change due to rate categories in proportion to the relationship of the absolute dollar amount attributable solely to the change in volume and to the change in rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
March 31, 2017 vs. March 31, 2016
|
|
Increases (Decreases) Due to Change In
|
|
Volume
|
|
Rate
|
|
Total
|
|
(in thousands)
|
Interest and dividend income:
|
|
|
|
|
|
Loans and leases receivable
|
$
|
7,873
|
|
|
$
|
(1,562
|
)
|
|
$
|
6,311
|
|
Securities
|
(870
|
)
|
|
367
|
|
|
(503
|
)
|
FRB and FHLB stock
|
(302
|
)
|
|
134
|
|
|
(168
|
)
|
Interest-bearing deposits in other banks
|
(7
|
)
|
|
36
|
|
|
29
|
|
Total interest and dividend income
|
$
|
6,694
|
|
|
$
|
(1,025
|
)
|
|
$
|
5,669
|
|
Interest expense:
|
|
|
|
|
|
Money market and savings
|
$
|
761
|
|
|
$
|
821
|
|
|
$
|
1,582
|
|
Time deposits
|
(371
|
)
|
|
216
|
|
|
(155
|
)
|
FHLB advances
|
119
|
|
|
154
|
|
|
273
|
|
Subordinated debentures
|
141
|
|
|
49
|
|
|
190
|
|
Total interest expense
|
$
|
650
|
|
|
$
|
1,240
|
|
|
$
|
1,890
|
|
Change in net interest income (taxable equivalent)
|
$
|
6,044
|
|
|
$
|
(2,265
|
)
|
|
$
|
3,779
|
|
Interest income, on a taxable equivalent basis, increased $5.7 million, or 13.1 percent, to $48.9 million for the three months ended March 31, 2017 from $43.2 million for the same period in 2016. Interest expense increased $1.9 million, or 46.0 percent, to $6.0 million for the three months ended March 31, 2017 from $4.1 million for the same period in 2016. For the three months ended March 31, 2017 and 2016, net interest income, on a taxable equivalent basis, was $42.9 million and $39.1 million, respectively. The increase in net interest income was primarily attributable to the growth in average loans and leases and the change in the mix of interest earning assets with average loans and leases at 87.0 percent of average interest-earning assets for the first quarter of 2017, up from 80.8 percent for the first quarter of 2016, offset by higher rates paid on interest-bearing deposit and increases in other borrowings balances and rates. The net interest spread and net interest margin, on a taxable equivalent basis, for the three months ended March 31, 2017 were 3.62 percent and 3.89 percent, respectively, compared with 3.75 percent and 3.98 percent, respectively, for the same period in 2016. Excluding the effects of acquisition accounting adjustments, net interest margin was 3.85 percent and 3.68 percent for the three months ended March 31, 2017 and 2016, respectively.
Average loans and leases increased $688.9 million, or 21.6 percent, to $3.88 billion for the three months ended March 31, 2017 from $3.19 billion for the same period in 2016. Average securities decreased $155.8 million, or 22.8 percent, to $526.5 million for the three months ended March 31, 2017 from $682.4 million for the same period in 2016. Average interest-earning assets increased $513.4 million, or 13.0 percent, to $4.46 billion for the three months ended March 31, 2017 from $3.95 billion for the same period in 2016. The increase in average loans and leases was due mainly to new loan production. Average interest-bearing liabilities increased $434.4 million, or 17.1 percent, to $2.98 billion for the three months ended March 31, 2017, compared with $2.54 billion for the same period in 2016. The increase in average interest-bearing liabilities resulted primarily from an increase in money market and savings deposits and borrowings, offset by a decrease in average time deposits. In addition, average noninterest-bearing demand deposits increased $57.3 million, or 5.0 percent, to $1.20 billion for the first quarter of 2017 from $1.14 billion in the same period in 2016.
The average yield on loans and leases decreased to 4.74 percent for the three months ended March 31, 2017 from 4.92 percent for the same period in 2016, primarily due to a decrease in discount accretion on purchased loans. The average yield on securities, on a taxable equivalent basis, increased to 2.30 percent for the three months ended March 31, 2017 from 2.07 percent for the same period in 2016, attributable primarily to purchasing higher yielding mortgage securities. The average yield on interest-earning assets, on a taxable equivalent basis, increased 4 basis points to 4.44 percent for the three months ended March 31,2017 from 4.40 percent for the same period in 2016, due mainly to the higher percentage of loans in the mix of
interest-earning assets. The average cost of interest-bearing liabilities increased by 17 basis points to 0.82 percent for the three months ended March 31, 2017 from 0.65 percent for the same period in 2016.
Provision for Loan and Lease Losses
In anticipation of credit risks inherent in our lending business, we set aside an allowance for loan and lease losses through charges to earnings. These charges are made not only for our outstanding loan and lease portfolio, but also for off-balance sheet items, such as commitments to extend credit, or letters of credit. The provisions, whether a charge or a credit, made for our outstanding loan and lease portfolio are recorded to the allowance for loan and lease losses, whereas charges or credits to other noninterest expense for off-balance sheet items are recorded to the allowance for off-balance sheet items, and are presented as a component of other liabilities.
The negative provision for loan and lease losses was $0.08 million for the first quarter of 2017, consisting entirely of a $80,000 negative provision for losses on PCI loans. For the same period in 2016, the negative provision for loan and lease losses was $1.5 million, which included a $0.2 million positive provision for losses on PCI loans. There was no charge to other noninterest expense for losses on off-balance sheet items for the three months ended March 31, 2017 compared to $0.2 million for the same period in 2016.
See also “Allowance for Loan and Lease Losses and Allowance for Off-Balance Sheet Items" for further details.
Noninterest Income
The following table sets forth the various components of noninterest income for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Increase (Decrease)
|
|
2017
|
|
2016
|
|
Amount
|
|
Percentage
|
|
(dollars in thousands)
|
Service charges on deposit accounts
|
$
|
2,528
|
|
|
$
|
3,001
|
|
|
$
|
(473
|
)
|
|
(15.8
|
)%
|
Trade finance and other service charges and fees
|
1,047
|
|
|
1,044
|
|
|
3
|
|
|
0.3
|
%
|
Other operating income
|
1,726
|
|
|
1,399
|
|
|
327
|
|
|
23.4
|
%
|
Subtotal service charges, fees and other income
|
5,301
|
|
|
5,444
|
|
|
(143
|
)
|
|
(2.6
|
)%
|
Gain on sale of SBA loans
|
1,464
|
|
|
858
|
|
|
606
|
|
|
70.6
|
%
|
Disposition gains on PCI loans
|
183
|
|
|
659
|
|
|
(476
|
)
|
|
(72.2
|
)%
|
Net gain on sales of securities
|
269
|
|
|
—
|
|
|
269
|
|
|
100.0
|
%
|
Total noninterest income
|
$
|
7,217
|
|
|
$
|
6,961
|
|
|
$
|
256
|
|
|
3.7
|
%
|
For the three months ended March 31, 2017, noninterest income was $7.2 million, an increase of $0.3 million, or 3.7 percent, compared with $7.0 million for the same period in 2016. The increase was primarily attributable to increased gains on the sale of SBA loans, securities transactions and lower gains from the resolution or disposition of PCI loans and service charges on deposit accounts. Sales of securities resulted in a net gain of $269,000 for the first quarter of 2017 compared to no gains for the same period in 2016. When a PCI loan is removed from a loan pool and the cash proceeds or assets received from the settlement of the loan are in excess of its carrying amount, we recognize such gains as disposition gains. Disposition gains on PCI loans were $0.2 million for the three months ended March 31, 2107 compared with $0.7 million the same period in 2016. Gains on SBA loan sales were $1.5 million for the first quarter of 2017, an increase from $0.9 million from the first quarter of 2016 as the volume of loan sales increased to $19.6 million from $12.4 million in the same quarter last year.
Noninterest Expense
The following table sets forth the components of noninterest expense for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
Increase (Decrease)
|
|
2017
|
|
2016
|
|
Amount
|
|
Percentage
|
|
(dollars in thousands)
|
Salaries and employee benefits
|
$
|
17,104
|
|
|
$
|
15,698
|
|
|
$
|
1,406
|
|
|
9.0
|
%
|
Occupancy and equipment
|
3,982
|
|
|
3,496
|
|
|
486
|
|
|
13.9
|
%
|
Data processing
|
1,631
|
|
|
1,436
|
|
|
195
|
|
|
13.6
|
%
|
Professional fees
|
1,148
|
|
|
1,464
|
|
|
(316
|
)
|
|
-21.6
|
%
|
Supplies and communications
|
635
|
|
|
736
|
|
|
(101
|
)
|
|
-13.7
|
%
|
Advertising and promotion
|
802
|
|
|
522
|
|
|
280
|
|
|
53.6
|
%
|
OREO expense (income)
|
(101
|
)
|
|
465
|
|
|
(566
|
)
|
|
-121.7
|
%
|
Merger and integration costs (income)
|
(31
|
)
|
|
—
|
|
|
(31
|
)
|
|
-100.0
|
%
|
Other operating expenses
|
2,070
|
|
|
2,251
|
|
|
(181
|
)
|
|
-8.0
|
%
|
Total noninterest expense
|
$
|
27,240
|
|
|
$
|
26,068
|
|
|
$
|
1,172
|
|
|
4.5
|
%
|
For the three months ended March 31, 2017, noninterest expense was $27.2 million, an increase of $1.2 million or 4.5 percent, compared with $26.1 million for the same period in 2016. The increase was due primarily to increases in salaries and employee benefits and occupancy and equipment expense, offset by lower OREO expenses, professional fees and other operating expenses. The increase in salaries and employee benefits is largely due to the increased headcount and merit increases compared to the same period in 2016.
Income Tax Expense
Income tax expense was $8.6 million for the three months ended March 31, 2017, compared with $6.2 million for the same period in 2016. The effective income tax rate was 38.5 percent for the three months ended March 31, 2017, compared with 29.5 percent for the same period in 2016. Income tax expense for the first quarter of 2016 included a $1.8 million benefit arising from the finalization of the 2014 amended income tax returns. The effective income tax rate for the first quarter of 2016 would have been 38.0 percent without this benefit.
Financial Condition
Securities
Securities are classified as held to maturity, available for sale, or trading in accordance with GAAP. There were no held to maturity or trading securities as of March 31, 2017 and December 31, 2016. Securities classified as available for sale are stated at fair value. The composition of our securities portfolio reflects our strategy of providing a relatively stable source of interest income while maintaining an appropriate level of liquidity. Our securities portfolio also provides a source of liquidity by pledging as collateral or through repurchase agreement and collateral for certain public funds deposits.
As of March 31, 2017, our securities portfolio was composed primarily of mortgage-backed securities, collateralized mortgage obligations and tax exempt municipal bonds. Most of the securities carried fixed interest rates. Other than holdings of U.S. government agency securities, there were no securities of any one issuer exceeding 10 percent of stockholders’ equity as of March 31, 2017 and December 31, 2016.
The following table summarizes the amortized cost, estimated fair value and unrealized gain (loss) on securities as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
Unrealized
Gain
(Loss)
|
|
Amortized
Cost
|
|
Estimated
Fair
Value
|
|
Unrealized
Gain
(Loss)
|
|
(in thousands)
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
(1) (2)
|
$
|
262,713
|
|
|
$
|
262,095
|
|
|
$
|
(618
|
)
|
|
$
|
230,489
|
|
|
$
|
229,630
|
|
|
$
|
(859
|
)
|
Collateralized mortgage obligations
(1)
|
87,855
|
|
|
86,928
|
|
|
(927
|
)
|
|
77,447
|
|
|
76,451
|
|
|
(996
|
)
|
U.S. government agency securities
|
7,499
|
|
|
7,446
|
|
|
(53
|
)
|
|
7,499
|
|
|
7,441
|
|
|
(58
|
)
|
SBA loan pool securities
|
4,354
|
|
|
4,163
|
|
|
(191
|
)
|
|
4,356
|
|
|
4,146
|
|
|
(210
|
)
|
Municipal bonds-tax exempt
|
159,203
|
|
|
158,774
|
|
|
(429
|
)
|
|
159,789
|
|
|
158,030
|
|
|
(1,759
|
)
|
Municipal bonds-taxable
|
1,045
|
|
|
1,037
|
|
|
(8
|
)
|
|
13,391
|
|
|
13,701
|
|
|
310
|
|
Corporate bonds
|
5,008
|
|
|
5,022
|
|
|
14
|
|
|
5,010
|
|
|
5,015
|
|
|
5
|
|
U.S. treasury securities
|
155
|
|
|
155
|
|
|
—
|
|
|
156
|
|
|
156
|
|
|
—
|
|
Mutual funds
|
22,916
|
|
|
22,390
|
|
|
(526
|
)
|
|
22,916
|
|
|
22,394
|
|
|
(522
|
)
|
Total securities available for sale
|
$
|
550,748
|
|
|
$
|
548,010
|
|
|
$
|
(2,738
|
)
|
|
$
|
521,053
|
|
|
$
|
516,964
|
|
|
$
|
(4,089
|
)
|
|
|
(1)
|
Collateralized by residential mortgages and guaranteed by U.S. government sponsored entities.
|
|
|
(2)
|
Includes securities collateralized by home equity conversion mortgages with total estimated fair value of
$50.5 million
and
$52.9 million
as of
March 31, 2017
and
December 31, 2016
, respectively.
|
As of March 31, 2017, securities available for sale increased 6.0 percent to $548.0 million, compared with $517.0 million as of December 31, 2016, due mainly to security purchases. As of March 31, 2017, securities available for sale had a net unrealized loss of $2.7 million, comprised of $1.3 million of unrealized gains and $4.0 million of unrealized losses. As of December 31, 2016, securities available for sale had a net unrealized loss of $4.1 million, comprised of $1.2 million of unrealized gains and $5.3 million of unrealized losses.
The following table summarizes the contractual maturity schedule for securities, at amortized cost, and their weighted-average yields as of
March 31, 2017
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
After One Year But
|
|
After Five Years But
|
|
|
|
|
|
|
|
|
|
Within One Year
|
|
Within Five Years
|
|
Within Ten Years
|
|
After Ten Years
|
|
Total
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
Amount
|
|
Yield
|
|
|
|
|
|
|
|
|
|
(dollars in thousands)
|
|
|
|
|
|
|
|
|
Securities available for sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities
|
$
|
5,330
|
|
|
1.68
|
%
|
|
$
|
32,191
|
|
|
1.77
|
%
|
|
$
|
100,831
|
|
|
2.15
|
%
|
|
$
|
124,361
|
|
|
2.04
|
%
|
|
$
|
262,713
|
|
|
2.04
|
%
|
Collateralized mortgage obligations
|
—
|
|
|
—
|
%
|
|
485
|
|
|
1.46
|
%
|
|
18,678
|
|
|
1.60
|
%
|
|
68,692
|
|
|
1.72
|
%
|
|
87,855
|
|
|
1.69
|
%
|
U.S. government agency securities
|
—
|
|
|
—
|
%
|
|
6,000
|
|
|
1.35
|
%
|
|
1,499
|
|
|
2.20
|
%
|
|
—
|
|
|
—
|
%
|
|
7,499
|
|
|
1.52
|
%
|
SBA loan pool securities
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
4,354
|
|
|
1.72
|
%
|
|
4,354
|
|
|
1.72
|
%
|
Municipal bonds-tax exempt
(1)
|
—
|
|
|
—
|
%
|
|
5,352
|
|
|
2.64
|
%
|
|
87,752
|
|
|
3.26
|
%
|
|
66,099
|
|
|
4.16
|
%
|
|
159,203
|
|
|
3.61
|
%
|
Municipal bonds-taxable
|
—
|
|
|
—
|
%
|
|
1,045
|
|
|
3.27
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
1,045
|
|
|
3.27
|
%
|
Corporate bonds
|
—
|
|
|
—
|
%
|
|
5,008
|
|
|
1.52
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
5,008
|
|
|
1.52
|
%
|
U.S. treasury securities
|
155
|
|
|
1.20
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
155
|
|
|
1.20
|
%
|
Mutual funds
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
%
|
|
22,916
|
|
|
2.14
|
%
|
|
22,916
|
|
|
2.14
|
%
|
Total securities available for sale
|
$
|
5,485
|
|
|
1.67
|
%
|
|
$
|
50,081
|
|
|
1.82
|
%
|
|
$
|
208,760
|
|
|
2.57
|
%
|
|
$
|
286,422
|
|
|
2.45
|
%
|
|
$
|
550,748
|
|
|
2.43
|
%
|
|
|
(1)
|
The yield on municipal bonds has been computed on a federal tax-equivalent basis of 35 percent.
|
Loans and Leases Receivable, Net
The following table shows the loan and lease portfolio composition by type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
Commercial property
|
|
|
|
Retail
|
$
|
909,986
|
|
|
$
|
859,953
|
|
Hospitality
|
652,114
|
|
|
651,158
|
|
Gas station
|
256,060
|
|
|
262,879
|
|
Other
(1)
|
1,115,898
|
|
|
1,109,656
|
|
Construction
|
56,072
|
|
|
55,962
|
|
Residential property
|
358,745
|
|
|
338,767
|
|
Total real estate loans
|
3,348,875
|
|
|
3,278,375
|
|
Commercial and industrial loans:
|
|
|
|
Commercial term
|
135,596
|
|
|
138,168
|
|
Commercial lines of credit
|
144,279
|
|
|
136,231
|
|
International loans
|
37,807
|
|
|
25,821
|
|
Total commercial and industrial loans
|
317,682
|
|
|
300,220
|
|
Leases receivable
|
259,591
|
|
|
243,294
|
|
Consumer loans
(2)
|
17,803
|
|
|
22,880
|
|
Loans and leases receivable
|
3,943,951
|
|
|
3,844,769
|
|
Allowance for loan and lease losses
|
(33,152
|
)
|
|
(32,429
|
)
|
Loans and leases receivable, net
|
$
|
3,910,799
|
|
|
$
|
3,812,340
|
|
|
|
(1)
|
The remaining other real estate categories represent less than one percent of total loans and leases, which, among other property types, include mixed-use, apartment, office, industrial, faith-based facilities and warehouse.
|
|
|
(2)
|
Consumer loans include home equity lines of credit of
$16.1 million
and $17.7 million as of March 31, 2017 and December 31, 2016, respectively.
|
As of March 31, 2017 and December 31, 2016, net loans and leases receivable (excluding loans held for sale and net of deferred loan cost, discounts and the allowance for loan and lease losses) were $3.91 billion and $3.81 billion, respectively, representing an increase of $98.5 million, or 2.6 percent. The increase in loans and leases as of March 31, 2017 compared with
December 31, 2016 was primarily attributable to new loan production of $202.7 million and residential mortgage loan purchases of $33.6 million, offset by loan pay-offs and pay-downs of $93.7 million and SBA loan sales of $19.6 million.
Our loan and lease portfolio included the following concentrations of loans to one type of industry that were greater than 10 percent of loans and leases outstanding:
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017
|
|
Percentage of Loans and Leases
Outstanding
|
|
|
Industry
|
(in thousands)
|
|
|
Lessor of nonresidential buildings
|
$
|
1,225,887
|
|
|
31.1
|
%
|
Hospitality
|
$
|
668,771
|
|
|
17.0
|
%
|
There was no other concentration of loans and leases to any one type of industry exceeding 10.0 percent of loans and leases outstanding.
Nonperforming Loans and Leases and Nonperforming Assets
Nonperforming loans and leases (excluding PCI loans) consist of loans and leases on nonaccrual status and loans and leases 90 days or more past due and still accruing interest. Nonperforming assets consist of nonperforming loans and leases and OREO. Non-purchased credit impaired (“Non-PCI”) loans and leases are placed on nonaccrual status when, in the opinion of management, the full timely collection of principal or interest is in doubt. Generally, the accrual of interest is discontinued when principal or interest payments become more than 90 days past due, unless we believe the loan is adequately collateralized and in the process of collection. However, in certain instances, we may place a particular receivable on nonaccrual status earlier, depending upon the individual circumstances surrounding the receivable's delinquency. When an asset is placed on nonaccrual status, previously accrued but unpaid interest is reversed against current income. Subsequent collections of cash are applied as principal reductions when received, except when the ultimate collectability of principal is probable, in which case interest payments are credited to income. Nonaccrual assets may be restored to accrual status when principal and interest become current and full repayment is expected. Interest income is recognized on the accrual basis for impaired loans and leases not meeting the criteria for nonaccrual. OREO consists of properties acquired by foreclosure or similar means that management intends to offer for sale.
Except for nonperforming loans and leases set forth below and PCI loans, we are not aware of any loans or leases as of
March 31, 2017
and December 31, 2016 for which known credit problems of the borrower would cause serious doubts as to the ability of such borrowers to comply with their present repayment terms, or any known events that would result in the receivable being designated as nonperforming at some future date. We cannot, however, predict the extent to which a deterioration in general economic conditions, real estate values, increases in general rates of interest, or changes in the financial condition or business of borrower may adversely affect a borrower’s ability to pay.
The following table provides information with respect to the components of nonperforming assets (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Increase (Decrease)
|
|
|
|
Amount
|
|
Percentage
|
|
|
|
(dollars in thousands)
|
|
|
Nonperforming Non-PCI loans and leases:
|
|
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
Retail
|
$
|
397
|
|
|
$
|
404
|
|
|
$
|
(7
|
)
|
|
-1.7
|
%
|
Hospitality
|
5,271
|
|
|
5,266
|
|
|
5
|
|
|
0.1
|
%
|
Gas station
|
994
|
|
|
1,025
|
|
|
(31
|
)
|
|
-3.0
|
%
|
Other
|
2,763
|
|
|
2,033
|
|
|
730
|
|
|
35.9
|
%
|
Residential property
|
552
|
|
|
564
|
|
|
(12
|
)
|
|
-2.1
|
%
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
Commercial term
|
822
|
|
|
824
|
|
|
(2
|
)
|
|
-0.2
|
%
|
Leases receivable
|
1,644
|
|
|
901
|
|
|
743
|
|
|
82.5
|
%
|
Consumer loans
|
331
|
|
|
389
|
|
|
(58
|
)
|
|
-14.9
|
%
|
Total nonperforming Non-PCI loans
|
12,774
|
|
|
11,406
|
|
|
1,368
|
|
|
12.0
|
%
|
Loans 90 days or more past due and still accruing
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total nonperforming Non-PCI loans and leases
(1)
|
12,774
|
|
|
11,406
|
|
|
1,368
|
|
|
12.0
|
%
|
OREO
|
4,636
|
|
|
7,484
|
|
|
(2,848
|
)
|
|
-38.1
|
%
|
Total nonperforming assets
|
$
|
17,410
|
|
|
$
|
18,890
|
|
|
$
|
(1,480
|
)
|
|
-7.8
|
%
|
|
|
|
|
|
|
|
|
Nonperforming Non-PCI loans and leases as a percentage of Non-PCI loans and leases
|
0.32
|
%
|
|
0.30
|
%
|
|
|
|
|
Nonperforming assets as a percentage of assets
|
0.36
|
%
|
|
0.40
|
%
|
|
|
|
|
Troubled debt restructured performing Non-PCI loans and leases
|
$
|
9,361
|
|
|
$
|
11,146
|
|
|
|
|
|
|
|
(1)
|
Includes nonperforming TDRs of $7.6 million and $6.9 million as of
March 31, 2017
and December 31, 2016, respectively.
|
Nonaccrual Non-PCI loans and leases were $12.8 million as of March 31, 2017, compared with $11.4 million as of December 31, 2016, representing a increase of $1.4 million, or 12.0 percent. There were no Non-PCI loans or leases past due 90 days or more and still accruing as of March 31, 2017 and December 31, 2016. During the three months ended March 31, 2017, $1.9 million of loans and leases were placed on nonaccrual status. These additions to nonaccrual loans and leases were mainly offset by $0.2 million of nonaccrual loans and leases restored to accrual status and $0.2 million in principal payoffs and pay downs and $0.1 million in charge-offs.
Delinquent Non-PCI loans and leases (defined as 30 to 89 days past due and still accruing) were $12.6 million as of March 31, 2017, compared with $7.4 million as of December 31, 2016.
The ratio of nonperforming Non-PCI loans and leases to Non-PCI loans and leases increased to 0.32 percent at March 31, 2017 from 0.30 percent at December 31, 2016. Of the $12.8 million nonperforming Non-PCI loans and leases, approximately $10.4 million were impaired based on the definition contained in ASC 310,
Receivables
, which resulted in aggregate impairment reserve of $4.5 million as of March 31, 2017. The allowance for collateral-dependent loans is calculated as the difference between the outstanding loan balance and the value of the collateral as determined by recent appraisals less estimated costs to sell. The allowance for collateral-dependent loans varies from loan to loan based on the collateral coverage of the loan at the time of designation as nonperforming. We continue to monitor the collateral coverage, based on recent appraisals, on these loans on a quarterly basis and adjust the allowance accordingly.
As of March 31, 2017, OREO consisted of 7 properties with a combined carrying value of $4.6 million, as compared with 12 properties with a combined carrying value of $7.5 million as of December 31, 2016.
Impaired Loans and Leases
We evaluate loan and lease impairment in accordance with GAAP. With the exception of PCI loans, loans and leases are considered impaired when it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan and lease agreement, including scheduled interest payments. Impaired loans and leases are measured based on the present value of expected future cash flows discounted at the receivable's effective interest rate or, as an expedient, at the receivable's observable market price or the fair value of the collateral if the loan is collateral dependent, less costs to sell. If the measure of the impaired receivable is less than the recorded investment in the receivable, the deficiency will be charged off against the allowance for loan and lease losses or, alternatively, a specific allocation will be established. Additionally, impaired loans and leases are specifically excluded from the quarterly migration analysis when determining the amount of the allowance for loan and lease losses required for the period.
The following table provides information on impaired loans and lease (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Recorded
Investment
|
|
Percentage
|
|
Recorded
Investment
|
|
Percentage
|
|
(dollars in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
Retail
|
$
|
1,661
|
|
|
6.6
|
%
|
|
$
|
1,678
|
|
|
6.4
|
%
|
Hospitality
|
6,175
|
|
|
24.8
|
%
|
|
6,227
|
|
|
23.6
|
%
|
Gas station
|
4,918
|
|
|
19.7
|
%
|
|
4,984
|
|
|
18.9
|
%
|
Other
|
5,276
|
|
|
21.2
|
%
|
|
6,070
|
|
|
23.0
|
%
|
Residential property
|
2,765
|
|
|
11.1
|
%
|
|
2,798
|
|
|
10.6
|
%
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
Commercial term
|
3,828
|
|
|
15.3
|
%
|
|
4,106
|
|
|
15.6
|
%
|
Commercial lines of credit
|
|
|
|
—
|
%
|
|
68
|
|
|
0.3
|
%
|
Consumer loans
|
321
|
|
|
1.3
|
%
|
|
419
|
|
|
1.6
|
%
|
Total Non-PCI loans and leases
|
$
|
24,944
|
|
|
100.0
|
%
|
|
$
|
26,350
|
|
|
100.0
|
%
|
Total impaired loans and leases decreased $1.4 million, or 5.3 percent, to $24.9 million as of March 31, 2017, as compared with $26.4 million at December 31, 2016. Specific allowances associated with impaired loans and leases were $4.5 million and $4.3 million as of March 31, 2017 and December 31, 2016, respectively.
During the three months ended March 31, 2017 and 2016, interest income that would have been recognized had impaired loans and leases performed in accordance with their original terms totaled $0.6 million and $0.9 million, respectively. Of these amounts, actual interest recognized on impaired loans and leases was $0.4 million and $0.7 million for the three months ended March 31, 2017 and 2016, respectively.
The following table provides information on TDRs (excluding PCI loans) as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Nonaccrual TDRs
|
|
Accrual TDRs
|
|
Total
|
|
Nonaccrual TDRs
|
|
Accrual TDRs
|
|
Total
|
|
(in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
1,218
|
|
|
$
|
1,218
|
|
|
$
|
—
|
|
|
$
|
1,228
|
|
|
$
|
1,228
|
|
Hospitality
|
4,993
|
|
|
—
|
|
|
4,993
|
|
|
5,014
|
|
|
—
|
|
|
5,014
|
|
Gas station
|
—
|
|
|
1,307
|
|
|
1,307
|
|
|
—
|
|
|
1,324
|
|
|
1,324
|
|
Other
|
1,940
|
|
|
2,780
|
|
|
4,720
|
|
|
1,181
|
|
|
4,318
|
|
|
5,499
|
|
Residential property
|
—
|
|
|
1,063
|
|
|
1,063
|
|
|
—
|
|
|
1,072
|
|
|
1,072
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
676
|
|
|
2,877
|
|
|
3,553
|
|
|
708
|
|
|
3,017
|
|
|
3,725
|
|
Commercial lines of credit
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
68
|
|
|
68
|
|
Consumer loans
|
—
|
|
|
116
|
|
|
116
|
|
|
—
|
|
|
119
|
|
|
119
|
|
Total Non-PCI loans and leases
|
$
|
7,609
|
|
|
$
|
9,361
|
|
|
$
|
16,970
|
|
|
$
|
6,903
|
|
|
$
|
11,146
|
|
|
$
|
18,049
|
|
For the three months ended March 31, 2017, no loans were restructured and subsequently classified as TDRs. Temporary payment structure modifications included, but were not limited to, extending the maturity date, reducing the amount of principal and/or interest due monthly, and/or allowing for interest only monthly payments for nine months or less.
As of March 31, 2017, TDRs on accrual status were $9.4 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $0.6 million allowance relating to these loans was included in the allowance for loan and lease losses. For the TDRs on accrual status, we determined that, based on the financial capabilities of the borrowers at the time of the loan restructuring and the borrowers’ past performance in the payment of debt service under the previous loan terms, performance and collection under the revised terms is probable. As of March 31, 2017, TDRs on nonaccrual status were $7.6 million, and a $3.2 million allowance relating to these loans was included in the allowance for loan and lease losses. As of December 31, 2016, TDRs on accrual status were $11.1 million, all of which were temporary interest rate and payment reductions or extensions of maturity, and a $0.7 million allowance relating to these loans was included in the allowance for loan and lease losses. As of December 31, 2016, TDRs on nonaccrual status were $6.9 million, and a $2.6 million allowance relating to these loans was included in the allowance for loan and lease losses.
Allowance for Loan and Lease Losses and Allowance for Off-Balance Sheet Items
The Bank charges or credits operating expenses for provisions to the allowance for loan and lease losses and the allowance for off-balance sheet items at least quarterly based upon the allowance need. The allowance is determined through an analysis involving quantitative calculations based on historic loss rates and qualitative adjustments for general reserves and individual impairment calculations for specific allocations. The Bank charges the allowance for actual losses and credits the allowance for recoveries on loans and leases previously charged-off.
The Bank evaluates the allowance methodology at least annually. In the fourth quarter of 2016 and first quarter of 2017, the Bank utilized a 24-quarter look-back period with equal weighting to all quarters. For the first quarter of 2016, the Bank utilized a 20-quarter look-back period.
To determine general reserve requirements, existing loans and leases are divided into eleven general pools of risk-rated loans, as well as three homogeneous pools. In the first quarter of 2016, existing loans were divided into fourteen general loan pools of risk-rated loans as well as three homogenous loan pools. For risk-rated loans, migration analysis allocates historical losses by pool and risk grade to determine risk factors for potential loss inherent in the current outstanding portfolio. As three homogeneous pools are bulk graded, the risk grade is not factored into the historical loss analysis. In addition, specific reserves are allocated for loans deemed “impaired.”
When determining the appropriate level for allowance for loan and lease losses, management considers qualitative adjustments for any factors that are likely to cause estimated loan and lease losses associated with the Bank’s current portfolio
to differ from historical loss experience, including, but not limited to, national and local economic and business conditions, volume and geographic
concentrations, and problem loan trends.
To systematically quantify the credit risk impact of trends and changes within the loan and lease portfolio, a credit risk matrix is utilized. The qualitative factors are considered on a loan pool by loan pool basis subsequent to, and in conjunction with, a loss migration analysis. The credit risk matrix provides various scenarios with positive or negative impact on the portfolio along with corresponding basis points for qualitative adjustments.
The following tables reflect our allocation of allowance for loan and lease losses by category as well as the receivable for each loan type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Allowance
Amount
|
|
Percentage
|
|
Non- PCI Loans and Leases
|
|
Allowance
Amount
|
|
Percentage
|
|
Non- PCI Loans and Leases
|
|
(dollars in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
4,400
|
|
|
13.6
|
%
|
|
$
|
908,432
|
|
|
$
|
4,172
|
|
|
13.3
|
%
|
|
$
|
857,629
|
|
Hospitality
|
9,469
|
|
|
29.4
|
%
|
|
650,518
|
|
|
9,171
|
|
|
29.2
|
%
|
|
649,540
|
|
Gas station
|
1,376
|
|
|
4.3
|
%
|
|
253,437
|
|
|
1,438
|
|
|
4.6
|
%
|
|
260,187
|
|
Other
|
6,949
|
|
|
21.5
|
%
|
|
1,113,851
|
|
|
7,448
|
|
|
23.7
|
%
|
|
1,107,589
|
|
Construction
|
1,458
|
|
|
4.5
|
%
|
|
56,072
|
|
|
1,916
|
|
|
6.1
|
%
|
|
55,962
|
|
Residential property
|
1,108
|
|
|
3.4
|
%
|
|
357,775
|
|
|
1,067
|
|
|
3.4
|
%
|
|
337,791
|
|
Total real estate loans
|
24,760
|
|
|
76.7
|
%
|
|
3,340,085
|
|
|
25,212
|
|
|
80.3
|
%
|
|
3,268,698
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
4,289
|
|
|
13.3
|
%
|
|
135,476
|
|
|
3,961
|
|
|
12.6
|
%
|
|
138,032
|
|
Commercial lines of credit
|
1,257
|
|
|
3.9
|
%
|
|
144,279
|
|
|
1,297
|
|
|
4.1
|
%
|
|
136,231
|
|
International loans
|
368
|
|
|
1.1
|
%
|
|
37,807
|
|
|
324
|
|
|
1.0
|
%
|
|
25,821
|
|
Total commercial and industrial loans
|
5,914
|
|
|
18.3
|
%
|
|
317,562
|
|
|
5,582
|
|
|
17.7
|
%
|
|
300,084
|
|
Leases receivable
|
980
|
|
|
3.0
|
%
|
|
259,591
|
|
|
307
|
|
|
1.0
|
%
|
|
243,294
|
|
Consumer loans
|
122
|
|
|
0.4
|
%
|
|
17,753
|
|
|
191
|
|
|
0.6
|
%
|
|
22,830
|
|
Unallocated
|
485
|
|
|
1.6
|
%
|
|
—
|
|
|
166
|
|
|
0.4
|
%
|
|
—
|
|
Total
|
$
|
32,261
|
|
|
100.0
|
%
|
|
$
|
3,934,991
|
|
|
$
|
31,458
|
|
|
100.0
|
%
|
|
$
|
3,834,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Allowance
Amount
|
|
Percentage
|
|
PCI Loans
|
|
Allowance
Amount
|
|
Percentage
|
|
PCI Loans
|
|
(dollars in thousands)
|
Real estate loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
|
|
|
|
|
|
Retail
|
$
|
98
|
|
|
11.0
|
%
|
|
$
|
1,554
|
|
|
$
|
122
|
|
|
12.6
|
%
|
|
$
|
2,324
|
|
Hospitality
|
140
|
|
|
15.7
|
%
|
|
1,596
|
|
|
138
|
|
|
14.2
|
%
|
|
1,618
|
|
Gas station
|
531
|
|
|
59.6
|
%
|
|
2,623
|
|
|
589
|
|
|
60.7
|
%
|
|
2,692
|
|
Other
|
—
|
|
|
—
|
%
|
|
2,047
|
|
|
1
|
|
|
0.1
|
%
|
|
2,067
|
|
Residential property
|
73
|
|
|
8.2
|
%
|
|
970
|
|
|
72
|
|
|
7.4
|
%
|
|
976
|
|
Total real estate loans
|
842
|
|
|
94.5
|
%
|
|
8,790
|
|
|
922
|
|
|
95.0
|
%
|
|
9,677
|
|
Commercial and industrial loans:
|
|
|
|
|
|
|
|
|
|
|
|
Commercial term
|
41
|
|
|
4.6
|
%
|
|
120
|
|
|
41
|
|
|
4.2
|
%
|
|
136
|
|
Consumer loans
|
8
|
|
|
0.9
|
%
|
|
50
|
|
|
8
|
|
|
0.8
|
%
|
|
50
|
|
Total
|
$
|
891
|
|
|
100.0
|
%
|
|
$
|
8,960
|
|
|
$
|
971
|
|
|
100.0
|
%
|
|
$
|
9,863
|
|
The following tables set forth certain information regarding allowance for loan and lease losses and allowance for off-balance sheet items for the periods presented. Allowance for off-balance sheet items is determined by applying reserve factors according to pool and grade as well as actual current commitment usage figures by type to existing contingent liabilities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended,
|
|
March 31, 2017
|
|
December 31, 2016
|
|
March 31, 2016
|
|
Non-PCI Loans and Leases
|
|
PCI Loans
|
|
Total
|
|
Non-PCI Loans and Leases
|
|
PCI Loans
|
|
Total
|
|
Non-PCI Loans and Leases
|
|
PCI Loans
|
|
Total
|
|
(dollars in thousands)
|
Allowance for loan and Lease losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
31,458
|
|
|
$
|
971
|
|
|
$
|
32,429
|
|
|
$
|
33,439
|
|
|
$
|
5,533
|
|
|
$
|
38,972
|
|
|
$
|
37,494
|
|
|
$
|
5,441
|
|
|
$
|
42,935
|
|
Actual charge-offs
|
(186
|
)
|
|
—
|
|
|
(186
|
)
|
|
(2,326
|
)
|
|
(4,991
|
)
|
|
(7,317
|
)
|
|
(637
|
)
|
|
—
|
|
|
(637
|
)
|
Recoveries on loans previously charged off
|
989
|
|
|
—
|
|
|
989
|
|
|
623
|
|
|
—
|
|
|
623
|
|
|
253
|
|
|
—
|
|
|
253
|
|
Net loan recoveries
|
803
|
|
|
—
|
|
|
803
|
|
|
(1,703
|
)
|
|
(4,991
|
)
|
|
(6,694
|
)
|
|
(384
|
)
|
|
—
|
|
|
(384
|
)
|
Loan and lease loss provision (income)
|
—
|
|
|
(80
|
)
|
|
(80
|
)
|
|
(278
|
)
|
|
429
|
|
|
151
|
|
|
(1,729
|
)
|
|
204
|
|
|
(1,525
|
)
|
Balance at end of period
|
$
|
32,261
|
|
|
$
|
891
|
|
|
$
|
33,152
|
|
|
$
|
31,458
|
|
|
$
|
971
|
|
|
$
|
32,429
|
|
|
$
|
35,381
|
|
|
$
|
5,645
|
|
|
$
|
41,026
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for off-balance sheet items:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at beginning of period
|
$
|
1,184
|
|
|
$
|
—
|
|
|
$
|
1,184
|
|
|
$
|
1,491
|
|
|
$
|
—
|
|
|
$
|
1,491
|
|
|
$
|
986
|
|
|
$
|
—
|
|
|
$
|
986
|
|
Provision (income)
|
—
|
|
|
—
|
|
|
—
|
|
|
(307
|
)
|
|
—
|
|
|
(307
|
)
|
|
234
|
|
|
—
|
|
|
234
|
|
Balance at end of period
|
$
|
1,184
|
|
|
$
|
—
|
|
|
$
|
1,184
|
|
|
$
|
1,184
|
|
|
$
|
—
|
|
|
$
|
1,184
|
|
|
$
|
1,220
|
|
|
$
|
—
|
|
|
$
|
1,220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loan and lease charge-offs (recoveries) to average loans and leases
(1)
|
(0.08
|
)%
|
|
—
|
%
|
|
(0.08
|
)%
|
|
0.18
|
%
|
|
157.18
|
%
|
|
0.73
|
%
|
|
0.05
|
%
|
|
0.00
|
%
|
|
0.05
|
%
|
Net loan and lease charge-offs (recoveries) to loans and leases
(1)
|
(0.08
|
)%
|
|
—
|
%
|
|
(0.08
|
)%
|
|
0.18
|
%
|
|
202.41
|
%
|
|
0.70
|
%
|
|
0.05
|
%
|
|
0.00
|
%
|
|
0.05
|
%
|
Allowance for loan and lease losses to average loans and leases
|
0.83
|
%
|
|
9.47
|
%
|
|
0.85
|
%
|
|
0.85
|
%
|
|
7.64
|
%
|
|
0.88
|
%
|
|
1.10
|
%
|
|
28.33
|
%
|
|
1.28
|
%
|
Allowance for loan and lease losses to loans and leases
|
0.82
|
%
|
|
9.94
|
%
|
|
0.84
|
%
|
|
0.82
|
%
|
|
9.84
|
%
|
|
0.84
|
%
|
|
1.08
|
%
|
|
28.46
|
%
|
|
1.24
|
%
|
Net loan and lease charge-offs (recoveries) to allowance for loan and lease losses
(1)
|
(9.96
|
)%
|
|
—
|
%
|
|
(9.69
|
)%
|
|
21.65
|
%
|
|
2056.02
|
%
|
|
82.57
|
%
|
|
4.34
|
%
|
|
0.00
|
%
|
|
3.74
|
%
|
Allowance for loan and lease losses to nonperforming loans and leases
|
252.55
|
%
|
|
—
|
%
|
|
259.53
|
%
|
|
275.80
|
%
|
|
—
|
%
|
|
284.32
|
%
|
|
217.38
|
%
|
|
0.00
|
%
|
|
252.06
|
%
|
Balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans and leases during period
|
$
|
3,884,949
|
|
|
$
|
9,412
|
|
|
$
|
3,881,686
|
|
|
$
|
3,686,013
|
|
|
$
|
12,702
|
|
|
$
|
3,690,955
|
|
|
$
|
3,224,973
|
|
|
$
|
19,925
|
|
|
$
|
3,192,832
|
|
Loans and leases at end of period
|
$
|
3,934,991
|
|
|
$
|
8,960
|
|
|
$
|
3,943,951
|
|
|
$
|
3,834,906
|
|
|
$
|
9,863
|
|
|
$
|
3,844,769
|
|
|
$
|
3,286,644
|
|
|
$
|
19,835
|
|
|
$
|
3,306,479
|
|
Nonperforming loans and leases at end of period
|
$
|
12,774
|
|
|
$
|
—
|
|
|
$
|
12,774
|
|
|
$
|
11,406
|
|
|
$
|
—
|
|
|
$
|
11,406
|
|
|
$
|
16,276
|
|
|
$
|
—
|
|
|
$
|
16,276
|
|
|
|
(1)
|
Net loan charge-offs (recoveries) are annualized to calculate the ratios.
|
Allowance for loan and lease losses was $33.2 million, $32.4 million and $41.0 million, as of March 31, 2017, December 31, 2016, and March 31, 2016, respectively. The increase of $0.7 million, or 2.2 percent in the allowance for loan and lease losses as of March 31, 2017, compared with December 31, 2016 was due primarily to the decline in estimated loss factors and improvements in classified loans and lease. Accordingly, the non-PCI loan and lease loss allowance increased $0.8 million to $32.3 million as of March 31, 2017, compared with $31.5 million at December 31, 2016. The PCI loan loss allowance decreased $0.1 million to $0.9 million as of March 31, 2017, compared with $1.0 million at December 31, 2016.
An allowance for off-balance sheet exposure, primarily unfunded loan commitments, as of March 31, 2017, December 31, 2016 and March 31, 2016 was $1.2 million, $1.2 million and $1.2 million, respectively. The Bank closely monitors the borrower’s repayment capabilities, while funding existing commitments to ensure losses are minimized.
Based on management’s evaluation and analysis of portfolio credit quality and prevailing economic conditions, we believe these allowances are adequate for losses inherent in the loan and lease portfolio and for off-balance sheet exposures as of March 31, 2017.
The following table presents a summary of net charge-offs (recoveries):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and for the Three Months Ended
|
|
Charge-offs
|
|
Recoveries
|
|
Net
Charge-offs (Recoveries)
|
|
(in thousands)
|
March 31, 2017
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
Hospitality
|
$
|
104
|
|
|
$
|
—
|
|
|
$
|
104
|
|
Gas station
|
—
|
|
|
—
|
|
|
—
|
|
Other
|
—
|
|
|
712
|
|
|
(712
|
)
|
Commercial and industrial loans:
|
|
|
|
|
|
Commercial term
|
40
|
|
|
277
|
|
|
(237
|
)
|
Leases receivable
|
42
|
|
|
—
|
|
|
42
|
|
Total Non-PCI loans
|
$
|
186
|
|
|
$
|
989
|
|
|
$
|
(803
|
)
|
|
|
|
|
|
|
March 31, 2016
|
|
|
|
|
|
Real estate loans:
|
|
|
|
|
|
Commercial property
|
|
|
|
|
|
Retail
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
(3
|
)
|
Hospitality
|
535
|
|
|
—
|
|
|
535
|
|
Gas station
|
—
|
|
|
81
|
|
|
(81
|
)
|
Other
|
—
|
|
|
9
|
|
|
(9
|
)
|
Commercial and industrial loans:
|
|
|
|
|
|
|
Commercial term
|
2
|
|
|
154
|
|
|
(152
|
)
|
Commercial lines of credit
|
100
|
|
|
6
|
|
|
94
|
|
Total Non-PCI loans
|
$
|
637
|
|
|
$
|
253
|
|
|
$
|
384
|
|
For the three months ended March 31, 2017, total charge-offs were $0.2 million, a decrease of $0.4 million, or 70.8 percent from $0.6 million for the same period in 2016, and total recoveries were $1.0 million, an increase of $0.7 million, or 290.9 percent, from $0.3 million for the same period in 2016
Deposits
The following table shows the composition of deposits by type as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2017
|
|
December 31, 2016
|
|
Balance
|
|
Percent
|
|
Balance
|
|
Percent
|
|
(dollars in thousands)
|
Demand – noninterest-bearing
|
$
|
1,241,272
|
|
|
30.4
|
%
|
|
$
|
1,203,240
|
|
|
31.6
|
%
|
Interest-bearing:
|
|
|
|
|
|
|
|
|
|
|
Demand
|
99,433
|
|
|
2.4
|
%
|
|
96,856
|
|
|
2.5
|
%
|
Money market and savings
|
1,534,578
|
|
|
37.6
|
%
|
|
1,329,324
|
|
|
34.9
|
%
|
Time deposits of $100,000 or more
|
892,575
|
|
|
21.9
|
%
|
|
844,386
|
|
|
22.2
|
%
|
Other time deposits
|
315,307
|
|
|
7.7
|
%
|
|
335,931
|
|
|
8.8
|
%
|
Total deposits
|
$
|
4,083,165
|
|
|
100.0
|
%
|
|
$
|
3,809,737
|
|
|
100.0
|
%
|
|
|
(1)
|
Includes $476.4 million and $445.4 million of time deposits of $250,000 or more as of March 31, 2017 and December 31, 2016, respectively.
|
Deposits increased $273.4 million, or 7.2 percent, to $4.08 billion as of March 31, 2017 from $3.81 billion as of December 31, 2016. The increase in deposits was mainly attributable to the $205.3 million and $38.0 million increase in money market and savings deposits and noninterest-bearing demand deposits, respectively.
Borrowings
At March 31, 2017 and December 31, 2016, there were $50.0 million and $315.0 million in overnight advances from the FHLB, respectively. The reduction in FHLB advances was supported by the increase in deposits for the first quarter of 2017. In addition, subordinated debentures were $116.8 million and $19.0 million at March 31, 2017 and December 31, 2016, respectively. The change represents the accretion of the acquisition discount and the proceeds from the Subordinated Note that closed on March 21, 2017.
Interest Rate Risk Management
The spread between interest income on interest-earning assets and interest expense on interest-bearing liabilities is the principal component of net interest income, and interest rate changes substantially affect our financial performance. We emphasize capital protection through stable earnings rather than maximizing yield. In order to achieve stable earnings, we prudently manage our assets and liabilities and closely monitor the percentage changes in net interest income and equity value in relation to limits established within our guidelines.
The Bank performs simulation modeling to estimate the potential effects of interest rate changes. The following table summarizes one of the stress simulations performed to forecast the impact of changing interest rates on net interest income and the value of interest-earning assets and interest-bearing liabilities reflected on our balance sheet (i.e., an instantaneous parallel shift in the yield curve of the magnitude indicated below). This sensitivity analysis is compared to policy limits, which specify the maximum tolerance level for net interest income exposure over a 12-month and 24-month horizon, given the basis point adjustment in interest rates reflected below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income Simulation
|
|
12-Month Horizon
|
|
24-Month Horizon
|
Change in
Interest
Rate
|
Dollar
Change
|
|
Percentage
Change
|
|
Dollar
Change
|
|
Percentage
Change
|
|
(dollars in thousands)
|
300%
|
$
|
(850
|
)
|
|
-0.47%
|
|
$
|
8,215
|
|
|
4.54%
|
200%
|
$
|
(701
|
)
|
|
-0.39%
|
|
$
|
5,422
|
|
|
3.00%
|
100%
|
$
|
(71
|
)
|
|
-0.04%
|
|
$
|
3,556
|
|
|
1.97%
|
-100%
|
$
|
(11,647
|
)
|
|
-6.31%
|
|
$
|
(20,260
|
)
|
|
-11.20%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Economic Value of Equity (EVE)
|
Change in
Interest
Rate
|
|
|
|
|
Dollar
Change
|
|
Percentage
Change
|
|
|
|
|
|
(dollars in thousands)
|
300%
|
|
|
|
|
$
|
(38,643
|
)
|
|
-5.70%
|
200%
|
|
|
|
|
$
|
(26,049
|
)
|
|
-3.80%
|
100%
|
|
|
|
|
$
|
(6,874
|
)
|
|
-1.00%
|
-100%
|
|
|
|
|
$
|
(34,839
|
)
|
|
-5.10%
|
The estimated sensitivity does not necessarily represent our forecast, and the results may not be indicative of actual changes to our net interest income. These estimates are based upon a number of assumptions including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and leases and securities, pricing strategies on loans and leases and deposits, and replacement of asset and liability cash flows. While the assumptions used are based on current economic and local market conditions, there is no assurance as to the predictive nature of these conditions, including how customer preferences or competitor influences might change.
Capital Resources and Liquidity
Capital Resources
Historically, our primary source of capital has been the retention of operating earnings. In order to ensure adequate levels of capital, the Board continually assesses projected sources and uses of capital in conjunction with projected increases in assets and levels of risk. Management considers, among other things, earnings generated from operations, and access to capital from financial markets through the issuance of additional securities, including common stock or notes, to meet our capital needs.
At
March 31, 2017
, the Bank’s total risk-based capital ratio of
15.91
percent, Tier 1 risk-based capital ratio of
15.07
percent, common equity Tier 1 capital ratio of
15.07
percent and Tier 1 leverage capital ratio of
13.08
percent, placed the Bank in the “well capitalized” category pursuant to new capital rule, which is defined as institutions with total risk-based capital ratio equal to or greater than 10.00 percent, Tier 1 risk-based capital ratio equal to or greater than 8.00 percent, common equity Tier 1 capital ratios equal to or greater than 6.50 percent and Tier 1 leverage capital ratio equal to or greater than 5.00 percent.
At
March 31, 2017
, the Company's total risk-based capital ratio was
16.16
percent, Tier 1 risk-based capital ratio was
12.93
percent, common equity Tier 1 capital ratio was
12.56
percent and Tier 1 leverage capital ratio was
11.21
percent.
For a discussion of implemented changes to the capital adequacy framework prompted by Basel III and the Dodd-Frank Wall Street Reform and Consumer Protection Act, see our 2016 Annual Report on Form 10-K.
Liquidity
Hanmi Financial
Management believes that Hanmi Financial, on a stand-alone basis, has adequate liquid assets to meet its current obligations.
Hanmi Bank
The principal objective of our liquidity management program is to maintain the Bank’s ability to meet the day-to-day cash flow requirements of our customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash needs. Management believes that the Bank, on a stand-alone basis, has adequate liquid assets to meet its current obligations. The Bank’s primary funding source will continue to be deposits originating from its branch platform. The Bank’s wholesale funds historically consisted of FHLB advances and brokered deposits. As of March 31, 2017, the Bank had $145 million of brokered deposits.
Off-Balance Sheet Arrangements
For a discussion of off-balance sheet arrangements, see Note 12 - Off-Balance Sheet Commitments included in the Notes to Consolidated Financial Statements (Unaudited) in this Quarterly Report on Form 10-Q and “Item 1. Business - Off-Balance Sheet Commitments” in our 2016 Annual Report on Form 10-K.
Contractual Obligations
There have been no material changes to the contractual obligations described in our 2016 Annual Report on Form 10-K.
Recently Issued Accounting Standards
FASB ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
, replaces existing revenue recognition guidance for contracts to provide goods or services to customers and amends existing guidance related to recognition of gains and losses on the sale of certain nonfinancial assets such as real estate. ASU 2014-09 established a principles-based approach to recognizing revenue that applies to all contracts other than those covered by other authoritative U.S. GAAP guidance. Quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows are also required. ASU 2014-09 was to be effective for interim and annual periods beginning after December 15, 2016 and was to be applied on either a modified retrospective or full retrospective basis. In August 2015, the FASB issued ASU 2015-14 which defers the original effective date for all entities by one year. Public business entities should apply the guidance in ASU 2015-14 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period.
While the guidance will replace most existing revenue recognition guidance in GAAP, the ASU is not applicable to financial instruments and, therefore, will not impact a majority of the Company’s revenue, including net interest income. While in scope of the new guidance, the Company does not expect a material change in the timing or measurement of revenues related to deposit account fees. The Company will continue to evaluate the effect that this guidance will have on other revenue streams within its scope, as well as changes in disclosures required by the new guidance. However, we do not expect adoption of this ASU to have a material impact on the Company’s consolidated financial statements.
FASB ASU 2016-01,
Financial Instruments-Overall Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
, Recognition and Measurement of Financial Assets and Financial Liabilities, amends the guidance in U.S. GAAP on the accounting for equity investments, financial liabilities under the fair value option and the presentation and disclosure requirements of financial instruments. The FASB additionally clarified guidance related to the valuation allowance assessment when recognizing deferred tax assets resulting from unrealized losses on available-for-sale debt securities. ASU 2016-01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted for the accounting guidance on financial liabilities under the fair value option. While we are currently evaluating the impact of this ASU, we do not expect its adoption to have a material impact on our consolidated financial statements.
FASB ASU 2016-02,
Leases (Topic 842)
, introduces the most significant change for lessees including the requirement under the new guidance to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases. By definition, a short-term lease is one in which: (a) the lease term is 12 months or less; and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect an accounting policy by class of underlying asset under which right-of-use assets and lease liabilities are not recognized and lease payments are generally recognized as expense over the lease term on a straight-line basis. This change will result in lessees recognizing right-of-use assets and lease liabilities for most leases currently accounted for as operating leases under the legacy lease accounting guidance. Examples of changes in the new guidance affecting both lessees and lessors include: (a) defining initial direct costs to only include those incremental costs that would not have been incurred if the lease had not been entered into, (b) requiring related party leases to be accounted for based on their legally enforceable terms and conditions, (c) eliminating the additional requirements that must be applied today to leases involving real estate and (d) revising the circumstances under which the transfer contract in a sale-leaseback transaction should be accounted for as the sale of an asset by the seller-lessee and the purchase of an asset by the buyer-lessor. In addition, both lessees and lessors are subject to new disclosure requirements. ASU 2016-02 is effective for public entities for interim and annual periods beginning after December 15, 2018.
As a lessee in several operating lease arrangements that are not considered short-tem, effective January 1, 2019, the Company expects to recognize a lease liability for the present value of future such lease commitments and a right of use asset for the same leases. While the Company is currently evaluating the impact of this new guidance, the adoption will result in an increase in the Company’s assets and liabilities on our consolidated balance sheets and it will likely not have a significant impact on our consolidated net income, stockholders’ equity or cash flows.
FASB ASU 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
, introduces new guidance for the accounting for credit losses on instruments within its scope. The new guidance introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. Current expected credit losses (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost; and (2) certain off-balance sheet credit exposures. This includes loans, held-to-maturity debt securities, loan commitments, financial guarantees, and net investments in leases, as well as reinsurance and trade receivables. Upon initial recognition of the exposure, the CECL model requires an entity to estimate the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses (ECL) should consider historical information, current information, and reasonable and supportable forecasts, including estimates of prepayments. Financial instruments with similar risk characteristics should be grouped together when estimating ECL. ASU 2016-13 is effective for public entities for interim and annual periods beginning after December 15, 2019. Early application of the guidance will be permitted for all entities for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We are currently of evaluating the impact of this ASU on our consolidated financial statements.
FASB ASU 2016-15,
Statement of Cash flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)
, addresses eight classification issues related to the statement of cash flows: (1) Debt prepayment of debt extinguishment costs; (2) Settlement of zero-coupon bonds: (3) Contingent consideration payments made after a business combination; (4) Proceeds from the settlement of insurance claims; (5) Proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies; (6) Distributions received from equity method investees; (7) Beneficial interests in securitization transactions; and (8) Separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
FASB ASU 2016-18,
Statement of Cash flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)
, requires that the statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Entities will also be required to reconcile such total to amounts on the balance sheet and disclose the nature of the restrictions. ASU 2016-18 is effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
FASB ASU 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of Business
, provides guidance on evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The new standard clarifies that when substantially all of the fair value of gross assets acquired is concentrated in a single asset, or a group of similar assets, the asset acquired would not represent a business. The new ASU introduces this initial required screen, if met, eliminates the need for further assessment. For public business entities with a calendar year end, the standard is effective in 2018. Early adoption is permitted, including adoption in an interim period. The amendments can be applied to transactions occurring before the guidance was issued, as long as the applicable financial statements have not been issued. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.
FASB ASU 2017-04,
Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
, simplifies the subsequent measurement of goodwill impairment by eliminating the requirement to calculate the implied fair value of goodwill (i.e., the current Step 2 of the goodwill impairment test) to measure a goodwill impairment charge. Under this ASU, the impairment test is simply the comparison of the fair value of a reporting unit with its carrying amount (the current Step 1), with the impairment charge being the deficit in fair value but not exceeding the total amount of goodwill allocated to that reporting unit. The simplified one-step impairment test applies to all reporting units (including those with zero or negative carrying amounts). An entity should apply the amendments in this ASU on a prospective basis. An entity is required to disclose the nature of and reason for the change in accounting principle upon transition. That disclosure should be provided in the first annual period and in the interim period within the first annual period when the entity initially adopts the amendments in this
standard. Public business entities should adopt the amendments in this ASU for annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact of this ASU on its consolidated financial statements.